When Suzhou HYC Technology filed a prospectus in March, aiming to become among the first crop of companies to sell shares on Shanghai’s new technology-focused Star Market, the company mentioned “semiconductors” 124 times, “computer chips” 127 times and “integrated circuits” 320 times.
But HYC does not manufacture semiconductors. In fact, more than 91 per cent of the company’s sales are from equipment used to test electronics. That did not stop its shares from finishing their first week 109 per cent higher than where they priced in the company’s initial public offering. Other Star-listed shares did well, too, their combined market capitalisation more than doubling to Rmb80.9bn ($11.8bn).
Still, HYC’s numerous references to technology, which Beijing has prioritised amid a deepening trade war with Washington, underscore an uncomfortable truth about a market that state media has characterised as China’s own “Nasdaq-style” tech board. Many of the 25 companies that listed this week might struggle to blend in alongside the likes of Apple, Facebook and Amazon.
Take China Railway Signal & Communication, which has previously grabbed international headlines but not for its innovative technology. In 2011 the state-run company’s equipment was partly blamed for a deadly high-speed train crash. Yet shares in CRSC, which was founded in 1953, account for more than 23 per cent of the Star board’s market capitalisation.
At Western Superconducting Technologies, superconducting wires account for only a tenth of total revenue, most of which comes from titanium alloy forging. Some of the copper film made by Guangdong Jia Yuan Technology is used in circuit boards, but 93 per cent of sales revenue is from copper sheets used in lithium batteries.
Not all Star stocks have one foot in heavy industry. Beijing Piesat develops satellite data analysis products and ArcSoft makes camera imaging software. And listings could shift to more recognised names if the companies that debuted this week can hold on to their gains.
Ian Zhu, from the venture capital arm of Chinese electric vehicle maker Nio, described Ronbay Technology, one of its portfolio companies that listed this week, as a “world-leading cathode material manufacturer” for electric vehicle batteries. It finished the week nearly 70 per cent higher than its issue price.
“If this continues, the new Star board will be a great market for leading tech companies to list,” Mr Zhu said.
That would be bad news for Hong Kong and New York. One Hong Kong-based IPO lawyer warned that the Star board was casting a wide enough net that tech listings in Hong Kong IPOs would eventually start to suffer. He added that unlike previous attempts to retain homegrown tech listings in China, this one had the direct backing of the central government.
“If one company lists on Star, there is one less to list in Hong Kong,” the lawyer said.